Johnson Controls and Tyco Unite: Leaving Autos in Rearview Mirror
Johnson Controls' transformation improves our moat trend outlook.
Johnson Controls (JCI) merged with Tyco International on Sept. 2 and is expected to spin off its automotive seating business, Adient, to shareholders on Oct. 31. We have taken a fresh look at the impact of the Tyco merger and Adient divestiture. We believe these two transactions will result in a more profitable and consistent (that is, less cyclical) business, one with much less exposure to the volatility of the automotive original equipment manufacturer market and more exposure to higher-margin, recurring service revenue. We think Tyco's suite of security and fire-protection products and services complements Johnson Controls' Building Efficiency business, and the combination should drive synergies and enhanced market penetration. Given the new company's drastically reduced exposure to the automakers and the addition of the Tyco business, which benefits from customer switching costs and intangible assets, we will upgrade narrow-moat Johnson Controls' moat trend to stable from negative once the merger and spin-off are executed.
Johnson Controls' Transformation Continues: Merges With Tyco and Divests the Auto Business
Tyco is the leading worldwide provider of security, fire-protection, and life safety products and services, with 9% global market share. Approximately 60% of the company's revenue is generated from product sales, with the remaining 40% of sales from higher-margin services. After the Adient spin-off, legacy Johnson Controls will consist of the Building Efficiency segment and the Power Solutions segment. The Building Efficiency segment sells HVAC and building automation products and services. The segment is the market leader in commercial HVAC and industrial refrigeration. The Power Solutions segment is the largest producer of lead-acid batteries in the world, selling 146 million lead-acid batteries in 2015, and is the lead-acid battery market leader with 36% market share.
Brian Bernard does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.